By Ben Rickman 

No one takes out a full page advertisement in the rather expensive Australian Financial Review (AFR) unless they are serious. Very serious, which this highly experienced, educated, successful and, importantly, respected team were.

As many of you will be aware, this team’s dream to take control of Macquarie Airports ultimately failed, as they were forced to fall on their sword or absorb an unmeasurable legal bill.

The sword was elected and the fall happened very publicly, very expensively and arguably at the short term detriment to the aforementioned reputations… or at least that is what you might at first think - given the final outcome. Reputations and experience, mind you, that were not built overnight. We are talking about four men with some 59 years of combined airport operational experience, with high level management roles across runways including Melbourne, Heathrow, Copenhagen, Perth, Aberdeen and Birmingham amongst others.

So who exactly were they and what the hell were they trying to achieve by getting involved in the first place?

The Global Airports ‘GAp’ team and a tiny insight of their deep experience:

Chris Barlow      Former CEO of Melbourne Airport
Kjeld Binger        Former CEO of Copenhagen International Airport
Hamish de Run  Current Director of Perth International Airport
Mike Fitzpatrick Former Director of Perth International Airport

The Plan

Essentially a structure to replace Macquarie Group as manager of Macquarie Airports (MAp) with, in their opinion, a superior management team. The clincher was to be that they proposed to do this at a substantially lower cost to MAp shareholders than the formal proposal presented to those very shareholders by the MAp board.

This original MAp proposal for ‘Internalisation of Management’ was first notified to the Australian Stock Exchange (ASX) by MAp on July 24, 2009. A revised version was submitted in late August; the core components being a $345,000,000 payment to Macquarie and an unchanged management team.

GAp tossed in an alternative that involved a maximum cost of $100M and a new management team.

Now regardless of the quality of the incumbent management, this was something that the MAp board had to consider and they did, meeting on the 14th September and responding with polite thanks, but no thanks that same day.

I recently had the opportunity to speak with Chris Barlow and during a long, frank and open discussion he indicated that the MAp team dismissed the GAp proposal as it was deemed too risky. Yet, as Chris lamented, they never fully disclosed what those risks were and this was where the antagonism started.

For the record, the formal ASX notification by MAp states, “…we reviewed the change of control consequences in scenarios where Macquarie’s management is terminated and formed the view that these consequences are too uncertain and involve too many risks for security holders for the IBCs (Independent Board Committees) to be prepared to support such an approach.”

Chris highlighted to me that, “the Macquarie Internalisation Proposal did not offer a clean break from Macquarie as there will be substantial involvement of past and present Macquarie representatives on the board and management of MAp…”

It was September 11th eerily enough when the GAp team first submitted their (then) confidential alternative in an email to independent director and Macquarie Airports Management Limited Chairman – Trevor Gerber, with former Carlton Football Club Captain and current AFL chairman Mike Fitzpatrick as its voice.

In a then private response that was then published on a website in the public domain, Mr Gerber acknowledged receipt of the Alternative Proposal and politely indicated that the IBCs had elected to decline the offer on the basis that the board approved proposal (including a $345M expense) was superior for all security holders.

GAp then had another crack in a second communiqué (around the time of the AFR advertisement) highlighting their belief that their proposal was ‘demonstrably superior’ and expressing surprise that MAp were reluctant to investigate a proposal that involves large potential savings for security holders in MAp.

GAp chose to add a little spark to the situation by adding the following: “Your view of the importance of Macquarie’s co-operation and the substantial value the Independent Directors had placed on it, seems also to completely disregard actions that Macquarie would be legally required to take to ensure that it acted in the best interests of other investors in the Macquarie managed funds that have co-invested with MAp in Brussels and Copenhagen airports, and in compliance with its other fiduciary and statutory duties.” A bit hard to read but an aggressive salvo nonetheless.

This time MAp fired back with a short sharp letter on September 20th (that they elected to release to the stock exchange shortly thereafter, thereby bringing into the public domain) thanking the GAp team for their enquiry and again rejecting the offer.

Nothing much in that except that they chose to close the letter like this: “…In practical terms it is not apparent that your ‘proposal’ is anything other than a job interview for three people who the board does not know for positions that are not vacant with a cost of a minimum fee of $45million.”

It is worth noting that if this was a formal job interview – complete with cover letter and resume - Chris Barlow and his troupe would have placed the performance of Melbourne Airport (under his tutorage) squarely at the top of page. Annual reports indicate that Melbourne out-performed Sydney (MAp’s key asset) in almost every aspect and it was this self-belief that fired the GAp team up in the first place.

They responded swiftly on September 21st stating, “Frankly we find amazing your lack of interest in exploring an alternative proposal prospectively worth hundreds of millions of dollars to the security holders you represent, not to mention the overtones of personal abuse and condescension towards the GAp team in your letter.”

This reply (all available in the public forum) went on to list 13 squarely struck and in your face questions of the MAp board such as “what exactly are the shareholding arrangements between MAp and the other Macquarie entities that will remain in place post the reconstruction to effect the Macquarie internalisation?” and If MAp has entered into such arrangements, who exactly entered into such extraordinary arrangements, why? and when?”

And “How do MAp security holders know that despite paying $345M to Macquarie on this occasion, those same arrangements wont be able to be invoked again in the future in a manner that could enable Macquarie or its other funds to extract further financial benefits to the detriment of MAp (eg in the event of a takeover bid for MAp?)”

All of this signed off by Mr Fitzpatrick with a visibly more terse looking signature than the friendly tone of letter 1… Email me for the evidence of you don’t believe me – it’s clearly obvious I swear.

By September 23rd MAp security holders were in receipt of a letter, jointly signed by Mr Gerber and MAp Independent Board Committee Chairman, Stephen Wood; indicating that they had “…considered and evaluated GAp’s suggestions and had elected not to pursue them on the basis that they pose unacceptable risks for MAp security holders from both a financial and operational standpoint. Furthermore MAp is not seeking a new management team”. Touché.

By the end of the day on September 30th, all 10 resolutions put to shareholders at the long planned special general meeting had been carried, clearing the way for the $345,000,000 payment to Macquarie to buy back the management rights. This huge payment will be funded by a one for eleven non-renouncable rights issue to raise as much as $358M at $2.30 per share (a $0.45 discount to today’s trading price – October 13th), achieving the very outcome that MAp had set out to achieve in the first place.

The GAp team however had burned in the order of more than half a million dollars in court costs, advice fees, advertising and the like…So you would have to think that for all the experience and success of these four men, to put that much money and their reputations on the line, that they must have been onto something. Only time will tell.

Speaking of which, by the time this article goes to print, the rights issue will be closed - so my opinion either way is pointless, but I will leave you with two messages: Always seek personal advice before participating in any investment and don’t get too ‘bristly’ with your signature…it may say more than you think.